Red Hot Real Estate Rental Markets in 2021

One would expect that last year’s pandemic would have had devastating effects on the nationwide real estate rental market, but that hasn’t been the case. There was a short-term blip, but as the economy has recovered, and the rental market has soared along with it.

Short-term rentals such as Airbnb and VRBO are on the rise. There has been a sharp increase in vacation rentals, and single-family and multi-family residential units are doing well. Not only that, but rents are on the rise. Despite a low supply of housing overall, demand for rentals and homeownership are both at record levels.

Rental yields are down from last year, but industry expectations are up. Top metro areas for rental yields include:

 

  • Cleveland, Ohio
  • Dallas, Texas
  • Fort Worth, Texas
  • Columbus, Ohio
  • San Antonio, Texas

Apartment rentals are in high demand, partly because higher-income households are a larger segment of the rental market. The factors driving the growth of the rental market are as diverse as the rental market itself. Many potential homeowners are unable to afford a home and therefore must rent until they save enough to buy. The housing supply is low, which means apartments are a great investment right now. House prices are high and interest rates are on the rise, making homeownership more affordable. The cost of living is also on the rise.  

All of this means many would-be homeowners are locked out of a rising market, making rentals a hot segment of the real estate market. But some markets are better than others. Where are the hottest rental markets in the steaming hot real estate rental market right now? 

Keep reading to find out.

What Makes a Hot Rental Market?

When researching the best places to invest in rental properties, investors should study the markets and make decisions based on sound financial principles. A few factors that determine what makes a good rental market include:

  • Location – This includes home prices, rental rates, job opportunities, new construction, and a host of other factors related to healthy living.
  • Local economic outlook – Population trends, median household incomes, home affordability, existing home sales, unemployment rate, and other economic factors tell a story.  
  • Vacancies – Vacancy rates compared to the number of listings are a clue to rising or falling markets.
  • Competitiveness – How many rental units are targeting the population? If it’s oversaturated, the market potential for newcomers will below.
  • Development trends – Healthy real estate markets have new construction projects on the way.
  • Evictions and tenant defaults – You don’t want to own rentals in an area where tenants fail to pay their rent.

A market doesn’t have to see all of these factors to be a hot rental market, but markets with several of these factors going for it are surely great places to invest in rental properties.

The Hottest Real Estate Rental Markets in the U.S. in 2021

Every investor must conduct due diligence to determine the best real estate rental markets for their investment strategy. There is no one-size-fits-all investment strategy. That said, there are some tell-tale signs of booming rental markets. I consulted seven leading sources for the data and found these 10 cities with the most mentions among those sources.

  1. Boise, Idaho – Boise has a tight real estate market with rising prices and low-interest rates. The population and job growth rate are higher than the national average. The unemployment rate is low and there is a high demand for rentals. Boise is on the list of five of the seven sources I consulted.
  2. Tampa Bay, Florida – Tampa Bay has a population of over 3 million, it’s growing 130 percent faster than the rest of the country, and it’s a hotspot for tourism. Home values have gone up over 5.3 percent in the last year, edging some potential homeowners out of the market. With less than two months of inventory, the market is just right for rental properties. The median rent is $1,600 a month.
  3. Dallas, Texas – The Dallas real estate market has been better than the national average for a long time, but the rental market is superb. The average monthly rent is 25 percent above the national average while the average home price is 35 percent below the national average. The population is booming because Dallas has a healthy economy and unemployment rate, taxes are low, there is little regulation, and the cost of living is terrific.  
  4. Orlando, Florida – Orlando has a great real estate market. Despite low house prices, many would-be homeowners are choosing to rent. There’s no state income tax and property taxes are low. So is insurance. The weather is nice, and Orlando is an entertainment mecca. Job seekers, retirees, and students keep Orlando’s population in growth mode. Rental property investors will find a hot market with students and retiring Baby Boomers.
  5. Huntsville, Alabama – Huntsville’s low cost of living is driving population growth. Technology, defense, and space are the top industries while the military and NASA are the top employers. There is a strong job market and rents are 37 percent higher than the national average. It’s one of the best places in Alabama for rental properties.
  6. Houston, Texas – Houston is home to more than 7 million people and has a job growth rate of 2.59 percent. It’s home to more Fortune 500 companies than any U.S. city except New York City. While home prices are lower than the national average, they are expected to rise soon. That will make Houston ripe for the rental property market. Rents are 21 percent above the national average.
  7. Charlotte, North Carolina – Charlotte, North Carolina is a hot destination for Millennials. It has a large singles population and extraordinary job growth. Many Millennials want to buy a home but can’t afford it. These factors make Charlotte a great rental real estate market.
  8. Albuquerque, New Mexico – Albuquerque has a strong real estate market overall. The city also has strong population growth and exceptional job growth. Home prices are affordable, and the average monthly rent is .87 percent of the property purchase price, one of the highest in the nation. With rising rents and excellent property appreciation, this is a good place for investors.
  9. Atlanta, Georgia – Atlanta is another large metro area with high population growth—122 percent. Rents are respectable and investors can see above-average equity growth in properties. Atlanta is one of the best rental markets in the country.
  10. Austin, Texas – Austin is another big Texas city with high population growth. It is expected to have the highest population growth in the next five years among the top 80 U.S. cities. Apple is building a $1 billion complex in Austin and Tesla recently announced it is moving its headquarters to Austin. With a strong economy and low unemployment, Texas’ capital is experiencing rising rents. Right now, real estate prices are still affordable.

Except for Boise and Tampa Bay, the two markets with the most mentions among sources I consulted, these cities are not listed in any order. Property investors should perform research and invest in markets that match their own investing styles and preferences.